Knight Accepts Nasdaq's $62M Facebook Plan

Published August 30, 2012

Reuters

After initially criticizing Nasdaq OMX Group for its response to Facebook's botched initial public offering, trading firm Knight Capital Group Inc said it accepted the exchange's latest plan to pay back brokers a portion of their losses.

Knight's support comes after Nasdaq increased the payback fund to $62 million in cash from an earlier $40 million made up mostly of trading rebates, the market-making firm said in a letter to the U.S. Securities and Exchange Commission, dated August 29.

Knight, which facilitates trades for other firms, had called Nasdaq's earlier plan "inadequate," and said it was considering legal action over the May 18 IPO.

"Although we would have preferred that the accommodation pool cover all losses sustained by Nasdaq members, we do support Nasdaq's proposal to increase the accommodation pool from $40 million to $62 million," Knight said in the letter obtained by Reuters.

Knight and other retail market-making firms and brokers together lost more than $500 million in the IPO.

Some firms, like UBS AG, which disclosed it lost more than $350 million, and Citigroup's Automated Trading Desk, which is said to have lost up to $35 million, have rejected the plan, saying Nasdaq should be responsible for all of the losses, because it acted in a for-profit manner in the IPO.

Liabilities at U.S. exchanges, which have some regulatory duties, are capped in most instances. Nasdaq's cap is $3 million a month.

Knight said it lost more than $35 million in the IPO, but it urged the SEC to leave the discussion of liability limitations and regulatory immunity to another day.

Citadel Securities, which is said to have lost $20 million, has also voiced support for the plan.

Still, Knight urged the SEC to reject a portion of Nasdaq's plan, which would require firms that sign on to waive their right to sue the exchange, a requirement Knight called "misplaced."

"Setting forth those types of requirements in the context of a rule filing inappropriately mixes commercial issues with regulatory requirements," Knight said in the three-page letter also addressed to SEC Chairman Mary Schapiro.

It said if the SEC disagrees and determines that some form of release is appropriate, it should only be sought after Nasdaq members are notified of the amount Nasdaq is willing to pay under the terms of the accommodation plan.